Tables turn on Vivendi - Business - International Herald Tribune

LONDON — Vivendi, the French media and telecommunications conglomerate that has spent the past four years undoing the effects of a failed acquisitions spree, has found itself the target of takeover interest and fresh questions about its future.

Vivendi said Saturday that it had received a "friendly expression of interest" from Kohlberg Kravis Roberts, the New York buyout firm that has carried out some of the industry's biggest deals.

The approach was worth $50 billion but "did not result in any proposition" and the talks have ended, people involved in the discussions said, though at least one person involved said they may be revived.

The development has revived speculation about the future of Vivendi, which owns Universal Music Group, the French pay-TV company Canal Plus, a video-games maker and telecommunications companies.

The talks could embolden other suitors to approach Vivendi and encourage shareholders who feel the conglomerate would be worth more in pieces. But any approaches for Vivendi, which has 34,000 employees and $24 billion in revenue last year, would be politically sensitive, given Vivendi's stature as the leading French media company.

who transformed the company from a staid water utility into a Hollywood player, was ousted as chief executive.

Messier's deal making turned the company into one of the world's biggest media groups, but loaded it with a debilitating debt. Much of the U.S. media business was later sold.

In the wake of Messier's departure, Vivendi has been wrestling with questions about its future. At least one shareholder has proposed a breakup of the company's diverse assets, and there has been speculation that the company's board is divided on its future.

The current chief executive, Jean- Bernard Lévy, appears to want to keep the company intact, analysts say. Lévy's strategy has included a merger of Canal Plus with a rival satellite operator, TPS. He has also returned Vivendi to the role of acquirer, striking a recent deal to buy the music publishing business of Bertelsmann, the German media company, for €1.6 billion, or $2 billion.

Vivendi said the review of the approach from Kohlberg Kravis Roberts concluded in favor of "maintaining the current Vivendi assets within the group in order to create value."

But some analysts say the company might be better off breaking itself up, rather than hoping for synergies to develop between the telecommunications side of the business, which provides the majority of profit, and the media units.

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"There are linkages between the telecoms and media strands, but not of such a scale as to justify the business being retained as a single group," said Patrick Wellington, an analyst at Morgan Stanley, in a recent note to investors.

Alexander Vik, a Norwegian investor who heads Sebastian Holdings, an owner of Vivendi shares, has called for the company's breakup. Vivendi rejected an approach from the firm last spring.

At the time, reports in the French press suggested that several Vivendi board members, including Claude Bébéar, who is also chairman of the French insurer AXA, and Jean-René Fourtou, the Vivendi chairman, also favored a breakup. They later joined

Lévy to deny these reports.

A Vivendi spokesman declined to comment Sunday.

Kohlberg Kravis Roberts has had links to Vivendi via Marie-Josée Kravis, wife of Henry Kravis, founding partner of the buyout firm, famed for its $30 billion purchase of RJR Nabisco in 1989. She was a member of Vivendi's supervisory board, but stepped down in March.

Private equity firms often see the sum of a company's parts as worth

more than the whole, breaking companies apart, cutting costs and then reselling the units at a profit. But analysts say that could be tough with Vivendi.

French regulations, for example, prevent foreign concerns from owning majority stakes in broadcasters.

And Universal Music has been gaining market share from rivals like Sony BMG, making it difficult to justify cost- cutting moves that might undermine its resurgence.

Questions have long swirled around the future of Vivendi's 56 percent stake in the French mobile operator SFR. The other 44 percent stake in SFR is owned by Vodafone, a British mobile operator, which has been selling foreign assets.

Any acquisition of Vivendi by a foreign concern could prove costly because of French tax laws that could bar a new owner from writing off some of the losses created by Messier.